Liam Dann 's Opinion

Liam Dann is the business editor of the NZ Herald

Liam Dann: Why I'm forgiving Fonterra

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Dairy giant still has work to do cleaning up the industry but has managed to ride the global dairy wave well.

A milk tanker leaves Fonterra's Te Rapa dairy factory. Dairy now accounts for close to 25pc of our export earnings. Photo / Christine Cornege.
A milk tanker leaves Fonterra's Te Rapa dairy factory. Dairy now accounts for close to 25pc of our export earnings. Photo / Christine Cornege.

Here's hoping some of that Cyclone Lusi rain soaked in on the Waikato's dairy farms at the weekend.

Although, if I said the farmers could use a break I'm pretty sure a lot of readers would laugh.

Dairy is getting a lot of bad press at the moment - and with some justification - about issues such as the water quality of our native streams and of course the debacle that was last year's botulism scare.

In fact, there is probably a large chunk of the public that would not have a good word for the dairy industry right now.

Perhaps it has always been that way - something to do with the urban/rural divide. Or perhaps it divides down liberal and conservative lines?

"It was a bold move for Fonterra CEO Theo Spierings to head straight for China as the scandal broke, but in hindsight it seems to be one of the things Fonterra did get right."
Liam Dann

Research into Kiwi attitudes about the industry would be interesting to see.

I'm not sure what the split between supporters, critics and the ambivalent masses would be.

But New Zealand didn't really fall in behind Fonterra when things got rough last year. I certainly didn't.

The company made some big mistakes and then reacted poorly. It did damage to the industry which was ironically weighted more heavily towards small independent operators than Fonterra itself. So it was very positive to see Fonterra take it on the chin last week and accept the charges that were brought by the Ministry of Primary Industries (MPI).

These included processing dairy product "not in accordance with its Risk Management Programme" and "exporting dairy product that failed to meet relevant animal product standards". The other two charges related to the failure to notify the relevant officials about these issues.

"And while the performance of the PR team and senior management appeared poor in this country, I have only heard good reports from Chinese nationals about the way the company fronted and took responsibility there."
Liam Dann

The charges don't end the whole affair for Fonterra. There is still a potentially costly civil suit with Danone to go.

Danone alleges breaches of the Fair Trading Act and is likely to make claims worth hundreds of millions of dollars. One suspects it will end with a settlement but there is still a long way to go.

Accepting the MPI charges, which will have penalties in mere hundreds of thousands, is a good step. It is a further sign that Fonterra is serious about doing better on these issues and moving forward.

And while the performance of the PR team and senior management appeared poor in this country, I have only heard good reports from Chinese nationals about the way the company fronted and took responsibility there.

Which is not to say they didn't do the brand damage at an official level, but among Chinese consumers who are used to seeing food scandals in the media spotlight, Fonterra gets a good rating for its performance.

It was a bold move for Fonterra CEO Theo Spierings to head straight for China as the scandal broke, but in hindsight it seems to be one of the things Fonterra did get right.

Of course it is a shame that they did not have the capacity to deal effectively with the issue in both markets.

The fears of New Zealand mothers are no less important on an individual basis.

New Zealanders deserved a better deal from Fonterra in this instance.

But we shouldn't forget just how valuable this company is to the economy.

"New Zealand dairying got it spectacularly right with Fonterra and and the whole nation is reaping the economic rewards. You'd hope even the staunchest environmental critics can see that. All the major political parties, bar the Greens, seem to."
Liam Dann

For the sake of interest let's go back to the 1990s. Imagine a New Zealand where the dairy farmers never managed to agree on a new industry structure.

Imagine New Zealand went into the biggest dairying boom in this planet's history with a poorly structured industry. Imagine we failed to cash in. It's not hard. We've done it before - with forestry, for example.

Imagine an industry still divided into dozens of small co-operatives, undercutting each other on price and being picked off by international buyers.

Imagine New Zealand dairy brands shut out of China by Nestle and Danone. How would the ratings agencies have looked at us when the GFC hit. How would we be feeling now as we watched global dairy prices soar and counted the opportunity cost.

It didn't happen. New Zealand dairying got it spectacularly right with Fonterra and and the whole nation is reaping the economic rewards.

You'd hope even the staunchest environmental critics can see that. All the major political parties, bar the Greens, seem to.

Dairy now accounts for close to 25 per cent of New Zealand's export earnings. And the bulk of that is earned by Fonterra.

Dairy pervades the economy and the cultural landscape - our obsession with flat whites, free milk in schools and even our political scandals, as witnessed last week.

I tell foreign visitors that it is bigger than oil in Texas for this country.

It is an incredible industry, a marvel of business innovation, technology, science and freight logistics. We should be proud of it. It is world class.

And it seems a reasonable time now, as the economy picks up and we all start to benefit, to acknowledge that.

So that's why I was cheering for the rain over the weekend. Well, that and for my lawn, if I'm honest.

Ominously for all of us perhaps, the patchy piece of pasture in my back yard remains rock solid with just a thin soft coating of mud despite Lusi's best effort.

- NZ Herald

Liam Dann

Liam Dann is the business editor of the NZ Herald

Liam Dann is the Business editor of the New Zealand Herald, overseeing all our business content in print and online. He has been a journalist for 20 years, covering business for the last 14 of them. He has also worked in the banking sector in London and travelled extensively. His passion is for Markets and Economics, because they are the engine of the New Zealand economy.

Read more by Liam Dann

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